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Truly “Natural” Gas
Gas represents a massive amount of the world’s energy consumption. A reason for the popularity of natural gas is that it is a rather “clean” fuel that produces very little residue or toxic gases, especially when compared to coal and oil.
It also has lower carbon emissions than other fossil fuels, which has led it to be often referred to as a “transition fuel”, a fuel to move away from coal power plants while utilizing the existing power infrastructure.
But there is a carbon carbon-neutral alternative to fossil fuel natural gas, which is to produce gas from organic matter, which previously adsorbed carbon from the air through plants’ photosyntesis. This is mostly referred to as biogas or biomethane.
And a lot of resources available to produce biogas are, for now, just being wasted.
How To Make Biogas
While some other products can be made from fermenting organic matter, the large majority of biogas is made of biomethane, so this article will focus on the potential of biomethane and mostly treat biogas as equivalent to biomethane.
Biomethane production can be divided into roughly 2 categories.
Biomethane Collection
This relies on the harvesting of naturally occurring biomethane production. This is, for example, common in landfills or wastewater treatment plants. As these places naturally collect a lot of organic matter, when there are anaerobic (no air/oxygen) conditions, bacteria produce biomethane. For a long time, these emissions were just released into the air.
Modern plants and landfills are now being upgraded to harvest this energy source. Because the gas already exists in a centralized place, and the source materil does not cost anything, these biogas projects tend to be more profitable.
Source: EIA
In the USA alone, 57 wastewater stations with this kind of equipment produced 895 million kWh of electricity. And biogas from 311 landfills generated 9.4 billion kWh. Or 0.2% of the total electricity production of the country.
So, while these numbers seem impressive, they are, for now, too small to change the carbon profile of US electricity generation. In total, 18 GW of power generation runs on biogas around the world, with most of it in Germany, Scandinavia, the UK, and the USA.
Source: EIA
Biomethane From Fermentation
For methane to be produced from organic matter, little or no air is needed to create the right conditions for fermentation. The presence of oxygen will favor microorganisms preferring the process of respiration, which produces CO2 instead of methane (CH4).
These airtight systems are often called biodigesters, but also biofermenters, biogas generators, methanisation units, r organic digesters. In practice, no system produces pure methane, but instead a mixture of methane and CO2, with 45%-75% content of methane.
The Potential of Biogas
Because most biogas production is now located in northern Europe, the UK, and the USA, there is a massive potential for development in South America, Asia, and Africa. This is especially true as landfills or wastewater tend to scale up in proportion to population, so most of the world’s potential for biogas/biomethane is untapped.
In fact, only 5% of the potential biomethane production is currently exploited, with only 35 Mtoe (million tons of oil equivalent) produced, compared to a 730 Mtoe potential, or 803 bcm (billion of cubic meters). For comparison, the world’s consumption of natural gas was just below 4,000 bcm (billion cubic meters) in 2022.
Source: EIA
Sourcing Material For Biogas
Most of the biogas potential is located in Asia and the Americas, with crop residues, animal manure, and woody biomass making up te bulk of the untapped potential.
Source: IEA
Farming Byproducts
Overall, the prospect of active biomethane production should be seen differently when it comes from animal waste and crop residue. Both are byproducts of existing farming activities and require no additional land clearing or farming to produce the feedstock.
Because they do not increase the pressure on natural and wild ecosystems, these source materials should be viewed as the primary way to increase biomethane production.
They also can provide an income complement or on-site power generation for the farmers.
Another advantage is that, except for some of the nitrogen content, the nutrients in the crop residues and manure can be harvested after biomethane production from the carbon fraction of the biomass. So it will still be usable for fertilizing the crops and pastures, helping close the bionutrients loop and reduce the need for chemical fertilizers.
In 2021, only 19 large dairies and livestock operations in the Uited States produced a total of about 0.2 billion (183 million) kWh of electricity from biogas.
Wood
Another option is woody biomass, either harvested on purpose or as waste from the process of logging for timber.
Direct harvest for biomethane consumption poses the same issues as other wood biomass energy generation, which are the risk of deforestation & damage to woodland habitats. And while collection of woody waste after clear cuttings is a little less damaging, it still removes habitat for small wildlife and nutrients from forests.
However, woody biomass can be valorized further with methods other than methanisation, notably through pyro-gasification (see below the segment about Charwood Energy).
Centralized and Decentralized Production
Biogas scaling up will need to be optimized for multiple conditions, each with a different scale. Some sites like wastewater stations or large animal farms should have medium-sized facilities dedicated to efficient collection, which also reducestheir carbon and methane emissions, with uncollected methane a powerful greenhouse gas.
We should see large and highly optimized fermenters to collect woody waste, crop residue, and other materials that can be gathered and centralized for biomethane production. Overall, the more industrialized a country and the more mechanized its farming industry is, the more centralized the biomethane production can be.
But we should also push for local production in developing countries, at the household or village scale, in order for local production to be done as well. Not only will this reduce emissions and produce energy, but it will also help poor farmers with additional income and provide clean cooking fuel & heating, displacing less efficient, resource-wasteful, and more polluting wood burning.
It could also reduce the practice of burning leftover biomass after the harvest, often contributing massively to air pollution, as that biomass would become something valuable instead.
Household-scle biogas systems can provide heating and cooking fuels in developing countries, as an alternative to the traditional use of solid biomass.
The output of these units is typically around 1 m3 per day, providing two to three hours of gas-fired stove cooking time for every 20 to 30 kg of animal manure.
Today there is enough sustainable feedstock to satisfy the entire energy demand for clean cooking in Africa.
Source: “Outlook for biogas and biomethane” – IEA
Top 5 BioGas & Biomethane Stocks
1. OPAL Fuels Inc. (OPAL)
finviz dynamic chart for OPAL
Opal Fuels is a US producer with country-wide production and distribution of RNG (Renewable Natural Gas/Biomethane). The company established partnerships for biogas production with landfills and waste collection, as well as water department or energy companies.
Source: Opal
It then resells this biogas to a network of distributors or directly to large clients like Amazon, UPS, or the city of Denver for example. Each of these contracts is vry long-term oriented, giving the company visibility on its operating cash flow.
Source: Opal
The company is growing quickly, with the production capacity scheduled to almost double in 2024, thanks to many projects already under construction, and should reach a total production of 9.3 MMBtu this year. All these projects are already fully funded.
It also has a pipeline of 19 projects worth 7.9 MMBtu for later development.
Source: Opal
With a relatively cheap valuation when considering the P/E ratio and incoming production growth, and a liquidity of $327M for $141M of net debt, Opal Fuels can be a good pick for investors interested in biogas and looking for a larger and relatively safe company.
2. EnviTec Biogas AG (ETG.DE)
EnviTec is a quickly growing biogas company, with its sales revenue up by 45.9% in H1 2023. Initially a German company, it is now aggressively expanding internationally, including in the UK and US.
Envitec is looking at expanding beyond biogas, and into advaned biofuels generation as well, notably through a newly opened EUR50M plant in Mecklenburg for bioLNG combined with carbon capture.
Envitec distributed a EUR2/share dividend in July 2023, making it a relatively high dividend yield company, with the EBT (Earning Before Taxes) more than enough to cover this dividend distribution.
Thanks to its balanced approach between growth and distribution of profits to shareholders, EnviTec can be a good pick for investors looking for a mix of growth and income in the biogas space, as well as exposure to the EU energy and gas sector, in the context of the strong decline of Russian gas supplies.
3. Biokraft International AB (BIOGAS.ST)
BioKraft sells and produces biogas in Sweden (230 GWh biogas and bioLNG), Norway (155 GWh bioLNG) and South Korea (60 GWh compressed biogas).
The company decided in April 2023 to enter the German market with 240 GWh future generation in 2 projects planned to be finished in 2025.
It has a total of 875 GWh of biogas nd 825 GWh of bioLNG new projects in the pipeline, planned to be finished by 2025-2026.
This would upgrade the current production capacity of 445 GWh to 1,200 GHw by 2026. The long-term target for the company is to reach a total of 3 TWh (3,000 GWh) by 2030.
Almost all the new projects will supply their feedstock from manure and agro-based waste.
Source: Biokraft
The company has suffered some losses from low sale prices for power and gas in the last few quarters, especially in Scandinavia. This makes the company partially a bet on a rebound of European gas prices.
Between its aggressive growth targets and its current unprofitability, Biokraft is the best fit for investors willing to take a risk and bet on the company turning around, in part thanks to its move toward the German market and maybe a turn of the EU gas market as a whole.
4. Greenlane Renewables Inc. (GRN.TO)
Greenlane specializes in biogas upgrade, or the process of adding biogas generation to existing facilities lik wastewater treatment plants or landfills. With 140 systems deployed globally, it is the #1 in the industry.
Source: Greenlane
Greenlane stands much ahead of its competition by total volume of biogas produced with its machinery, even ahead of industrial giants like Air Liquid. It is also worth noticing that except for Air Liquid and Wartsila (for which biogas is just a small part of total activity), the largest competitors of Greenlane like Prodeval, DMT, or Bright biomethane are not publicly traded.
Source: Greenlane
The company offers 3 different technologies for biogas production (membranes, water wash, and PSA-Pressure Swing Adsorption), which is the best fit depending on the local conditions and feedstock. This allows for the removal from the gas of contaminants like nitrogen, CO2, oxygen, or potentially toxic impurities.
In September 2023, Greenlane launched a new product line with key-in-hand designs for each biogas generation sector (sugarcane residues, landfills, manure etc.).
It is the only provider able to offer all 3 solutions, making it a good pick for clients interested in adopting the best possible technology for their unique circumstances.
Source: Greenlane
A key growth sector for the company will be Brazil (a global agricultural powerhouse), where it recently signed an agreement to establish industrial-scale volume production.
The agreement was signed with ZEG Biogás, 50% owned by VIBRA, previously the fuel distribution unit of Petrobras, the national oil company. The goal is to reach production at 75+ sites in 5 years.
As it is not a producer of biogas, but a seller of the machinery to produce biogas, Greenlane should be seen as a “pick and shovel” type of stock, with its sale reflecting the pace of adoption of biogas solutions globally. And the largest publicly traded stock in this category.
It is likely to be exposed to the fluctuations of natural gas prices (making new projects more or less attractive) and of the adoption of punitie carbon taxes on non-carbon neutral alternatives.
5. Charwood Energy SA (ALCWE.PA)
This French company supplies turnkey biomass power plants, with a focus on selling to agricultural holdings, industries, and municipalities.
The company is doing methanisation, but also pyro-gasification, which produces biomethane, as well as direct energy, biochar (used as fertilizer), green hydrogen, and carbon credits.
This method allows for additional revenues besides biogas sales, as well as improving the soils’ health by locking carbon in biochar, a key method in sustainable farming practices.
Source: Charwood
Pyro-gasification relies on wood supply and represents 57% of the company’s pipeline of potential projects. The whole pipeline is estimated at €43M.
To develop the pyro-gasification activity, Charwood has established a partnership with Spanner Re2, the German leader of this technology, with 900 co-generation units installed since 2007. Charwood is in charge of developing the French maket for this technology and has also successfully launched a project in the Democratic Republic of Congo (DRC).
The company has registered a decline in turnover in H1 2023 of €1.5M compared to H1 2022’s €2.1M. This was due to a delay in milestones for new projects, with €3.7M of deliverables expected by the end of 2024.
Once these 5 plants in construction are launched, they are expected to generate up to €7.7M in ARR (Annual Recurring Revenue) from energy sales. The company is aiming for a total of 50 plants in construction or operated by Charwood by 2027, representing €90M in ARR.
Because it is still at an early stage, the company should be attractive mostly to investors looking for an aggressive growth profile and low valuation multiple.
The company is listed in France and publishes its financial report in French. Presentations for investors are, however, available in English.
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